In a time when entire industries are faced with uncertainty, the automotive industry is in particularly uncertain waters as multiple pandemic-related issues wreak havoc on global automotive production and distribution. Fortunately for dealers, this has presented a unique opportunity to maximize profits; demand for pre-owned vehicles has risen sharply over the past few months. As of September, economists have tentatively declared used car prices to be plateauing, although it could be years before they come back down to pre-pandemic levels. In the meantime, speculation varies between experts as to what we should expect in the coming months. Between an unremitting computer chip shortage, global logistics being throttled by pandemic restrictions, and the inevitable brick wall of only having a finite number of used cars, there’s a lot at play in the current economy that can directly impact you and your business. Dealer Merchant Services wants you to be prepared and informed of what’s to come, so today we’ve got a round-up of some of the most important developments in the automotive world.
The current scarcity of computer chips has been felt by every corner of global trade, as computer systems are used in manufacture, distribution, and in the case of modern day automobiles, are integrated into the final product. Unfortunately for these sectors that depend on computer chips, it looks like the shortage isn’t going to end any time soon, according to LMC Automotive. With the emergence of the Delta variant of Covid-19, industry analysts like LMC Auto have speculated that chip production may not return to pre-pandemic levels until 2022, and possibly 2023. This is somewhat mixed news, as new car production has decreased significantly, driving up prices and demand for pre-owned vehicles.
Automotive Sales are Down
Despite pre-owned car sales having a substantial uptick overall, total automotive sales have actually taken a downturn since May. This somewhat tracks with annual car-buying trends, but this year has proven to be a meager year, with sales decreasing sharply: data collected by the United States Bureau of Economic Analysis shows a 28% decrease in the span of four months. While economists remain hopeful that the holiday season will improve business, there's nothing to suggest that we will move from this trend any time soon— in fact, it may just get worse for automotive dealers in particular.
Only so Many Pre-owned Cars to Sell
The past year brought on interesting changes to the supply-demand dynamic across the board. Demand has been decidedly high for pre-owned vehicles, in part due to fewer new cars being produced. Another contributor to the surge in demand is the conditions of the pandemic itself. Due to the close-quarters nature of public transit, many would-be bus and train riders have elected to buy lower-end cars to get around, at least until the pandemic subsides. Neither of these market stimulators appear to be going away any time soon, so a reasonable question is: what if we run out of pre-owned cars?
Of course, we will never truly run out of used cars, but consumer habits do reveal a worrying picture. Most shoppers tend to buy within the “sweet spot”; while there isn’t a hard definition for this, most agree that their preferred vehicle will be under 4 years old and under 50,000 miles. These near-new cars are in especially short supply given that there aren’t many new cars being made. As pre-owned inventory becomes older and more well-driven, consumers will begin to put off their car-buying plans. In fact, it’s already happening: according to an August study conducted by Kelly Blue Book, nearly half of recent car shoppers said they would be postposing their purchase in anticipation of a more favorable market.
Prepare for the Inevitable Automotive Depression with DMS
With consumers holding out for better deals and greater availability, it’s only a matter of time before reluctance begin to negatively impact dealers. Make switching to Dealer Merchant Services your first and best cost-cutting measure in preparation for the end of this “gross wave”. DMS is committed to excellent, transparent service— that means a customized program with no hidden fees, and no games. You could save up to $100,00 a year on credit processing fees! Contact us on our website or at info@DealerMerchantServices.com to get your free cash-savings analysis and see exactly how much you’ll save! Just send us two to three months’ worth of merchant statements, and we’ll respond with a 15-minute review at no charge to you.